Ministry of Finance, Government of India, with a view to provide several benefits and to create large number of employment opportunities within India, announced various relief measures especially for the MSMEs (vis-à-vis Micro, Small & Medium Enterprises). To achieve this dream of creating lot more employment in India, it was felt necessary to widen the base of MSMEs so that more and more number of enterprises can be covered under this criteria & that they can avail the benefits as available to MSMEs.
In this process, Ministry of Finance, in its Press Release dated 13th May, 2020 announced for change in Definition of MSME and thereby the existing criteria of classification on basis of Investment in Plant & Machinery or Equipment was changed to Composite criteria of Investment & Turnover and it also eliminated the difference between Manufacturing & Service Sector Enterprises. As per the Press Release maximum ceiling limit for highest placed category (i.e. Medium enterprise) was set at for Investment up to Rs.20 crore & for Turnover up to Rs.100 crore.
After the Press Release, change in definition of MSME was notified on date 01st June, 2020 vide S.O. 1702(E). and the ceiling limit for highest placed category (i.e. Medium enterprise) was increased heavily & is set at for Investment limit of up to Rs.50 crore & for Turnover up to Rs.250 crore. This notification was made effective from 01st July, 2020.
The intention of Government is very clear that it wants large number of enterprises to get covered under the ambit of MSME category so that these enterprises can grow as only a growing business can create large number of employment opportunities.
Now the Ministry has issued another notification on date 26th June, 2020 vide S.O. 2119(E). providing clarification on various issues involved in classification of an enterprises as Micro or Small or Medium and it also provide for procedure for registration known as “Udyam Registration”. It is made effective from 01st July, 2020.
In this article we will be discussing this notification in detailed manner in easy to understand language.
BASIS & PURPOSE OF NOTIFICATION
- It notifies certain criteria for classifying the enterprises as Micro, Small and Medium enterprises and specifies the Form and Procedure for filing the memorandum (i.e. “Udyam Registration”), with effect from 01st July, 2020
- Powers to issue this notification is conferred U/s 7(1) read with Sec 7(9) and Sec 8(2) read with Sec 8(3) of Micro, Small & Medium Enterprises Development Act, 2006 (27 of 2006) (MSMED Act).
- This notifications is issued in supersession of the notifications of the Government of India in the Ministry of MSME No. S.O.1702 (E ) dt. 01/06/2020 , S.O. 2052 (E) dt. 30/06/2017, S.O.3322(E ) dt. 01/11/2013 & S.O.1722(E) 05/10/2006.
CLASSIFICATION OF MSME Enterprises as Micro, Small & Medium
Investment in Plant & Machinery or Equipment
||Up to Rs.1 crore
(Rupees One Crore)
|Up to Rs.5 crore
(Rupees Five Crore)
||Up to Rs.10 crore
(Rupees Ten Crore)
|Up to Rs.50 crore
(Rupees Fifty Crore)
||Up to Rs.50 crore
(Rupees Fifty Crore)
|Up to Rs.250 crore
(Rupees Two hundred Fifty Crore)
Explanations on Various Issues involved in Classification of Enterprises under Different Categories:-
1. Criteria of Investment & Turnover
- Criteria of Investment & Turnover is a Composite Criteria and for any enterprises to be categorized as Micro or Small or Medium Enterprises, it has to fall within that particular criteria as specified above.
- If an enterprise crosses either of the criteria vis-à-vis Investment or Turnover ceiling limits as specified for its present category, it will be moved & placed in the next higher category.
- For Example:-
- Suppose presently Enterprises A Ltd has investment of Rs.50 Lakhs & Turnover of Rs.3 crore then it will be categorized as Micro Enterprises.
- But say its Investment remains at Rs.50 lakhs but its turnover increase to Rs.6 crore, then it will be moved & placed in next higher category & will be categorized as Small Enterprises
- Similarly if its investment increases to Rs.9 crore & its turnover increases to Rs.275 crore, it will be out of ambit of MSME as now its turnover celling limit has crossed the highest placed category i.e. Medium Enterprises. And accordingly in this case Enterprises A Ltd will neither be classified as Micro nor Small nor Medium Enterprises
2. Aggregate Value of Investment & Turnover is to be taken for classification
- It has been further clarified that for the purpose of deciding the category as Micro , Small or Medium Enterprise, the Amount of Turnover & Amount of Investment has to be seen in aggregate for the all the units under same PAN.
- In case where more than one Goods and Services Tax Identification Number (GSTIN) is registered under the same PAN, all such units / branches by whatever name called will be treated collectively as one enterprise and the Turnover and Investment figures for all of such entities shall be taken together for classification of the enterprises.
3. Calculation of Investment in Plant & Machinery or Equipment
For Existing Running Enterprises:-
- The calculation of investment in plant and machinery or equipment is linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961
- The expression “plant and machinery or equipment” of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings). So it will include plants like ships, vehicles, scientific apparatus , surgical equipment etc.
For New Enterprises:-
- In case of New Enterprises, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise
- The purchase value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST) charged. Since only GST has been excluded from the value of Plant & Machinery or Equipment, any other tax or duty like Custom duty etc paid on import will be included in its value.
- Above relaxation shall end after the 31st March of the financial year in which it files its first ITR
Exclusions from amount of investment in plant and machinery:-
Cost of certain items as specified in Explanation 1 of Sec 7(1) of the MSMED Act shall be excluded from the calculation of amount of investment in Plant & Machinery.
Explanation 1 of the said section excludes the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification.
4. Calculation of Turnover
- For the purpose of classification, Exports of goods or Services or both, shall be excluded while calculating the turnover of the enterprise
- Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN
- If the enterprise do not have PAN, the Turnover of such enterprise will be considered on self-declaration basis. However this facility is available only for period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.
MSME UDYAM REGISTRATION PROCEDURE
- It is an online process and application is required to be filed on official Udyam Registration portal which is www.udyamregistration.gov.in
- As per the official webpage of the ministry, some other domains will also be diverted to above portal. These are – https://msmeregistration.gov.in, https://udyam.gov.in, udyamregistration.co.in, udyamregistration.biz , udyamregistration.com , udyamregistration.in , udyamregistration.org , udyamregistration.info
- Any enterprise falling under any of the category of Micro or Small or Medium Enterprise and want to avail benefits as provided to MSME under MSMED Act & by the Government from time to time is required to get itself registered.
- Registration is required by both New as well as Existing registered enterprises.
- One of the basic requirement for registration is Aadhaar number.
- Depending upon the constitution of the enterprises , Aadhaar number of Proprietor / Managing Partner / Karta is required.
- In case where the applicant enterprise is a Company or LLP or Cooperative Society or Society or Trust, PAN & GSTIN is mandatory along with Aadhaar number of its authorized signatory
- Any number of activities, whether manufacturing or services or both, can be included in same registration.
- Registration Form is a self-declaration basis with no requirement to upload the documents, papers, certificates or proof. However it is highly advisable that only correct data should be provided for all the information sought in the Form otherwise penal consequences will follow.
- On registration, an enterprise (referred to as “Udyam” in the Udyam Registration portal) will be assigned a Permanent Identity Number to be known as “‘Udyam Registration Number”.
- On completion of successful registration process an e-certificate, namely, “Udyam Registration Certificate” shall be issued.
- There is no fee to be deposited for filing Udyam Registration
- One enterprise can file only one registration.
- In case where enterprise is registered with PAN, any deficiency or information of previous years when it did not have PAN shall be filled up on self-declaration basis.
MSME UDYAM REGISTRATION OF EXISTING ENTERPRISES
- Now that definition of MSME has been changed w.e.f 01st July, 2020, it is specifically provided that all the existing registered enterprises are required to get themselves registered as Udyam on Udyam Registration Portal
- So All the existing enterprise registered under EM-Part-II or UAM (Udyog Adhaar Memorandum) shall register again under Udyam Registration
- Validity of Existing Registration: All those existing enterprises registered till 30th June, 2020, shall continue to be valid only for a period up to the 31st March, 2021. Therefore these enterprises shall get themselves registered under Udyam Registration on or before 31st March, 2021.
- Reclassification: All those existing enterprises shall be reclassified in accordance with this notification.
- An enterprise registered with any other organization under the Ministry of Micro, Small and Medium Enterprises shall also register itself under Udyam Registration.
PENALTY ON MISREPRESENTATION
It has also been provided that whoever intentionally misrepresents or attempts to suppress the self-declared facts and figures appearing in the Udyam Registration or updation process shall be liable to such penalty as specified under section 27 of the MSMED Act.
UPDATION OF INFORMATION AND TRANSITION PERIOD IN CLASSIFICATION
Unlike the old MSME registration as EM-Part-II or UAM, under the Udyam Registration, responsibility has been casted upon registered enterprises to update the information regularly within the time allowed. This information will be used for reclassification of the enterprise –
- An enterprise having Udyam Registration Number (hereinafter referred to as URN) shall update its information online in the Udyam Registration portal
- Apart from the other information, details of the ITR and the GST Return for the previous financial year and such other additional information as may be required is required to be updated on self-declaration basis, within the time period as may be specified.
- Based on the information furnished or gathered from Government’s sources including ITR or GST return, the classification of the enterprise will be updated
- Failure to update the relevant information will render the enterprise liable for suspension of its status.
- In case of graduation (from a lower to a higher category) or reverse-graduation (sliding down to lower category) of an enterprise, a communication will be sent to the enterprise about the change in the status
- In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent reclassification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration
- In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place
FACILITATION AND GRIEVANCE REDRESSAL OF ENTERPRISES
- Single Window System for facilitating Registration – The Champions Control Rooms functioning in various institutions and offices of the Ministry of Micro, Small and Medium Enterprises including the Development Institutes (MSME-DI) shall act as Single Window Systems for facilitating the registration process and further handholding the micro, small and medium enterprises in all possible manner
- The District Industries Centers (DICs) will also act as Single Window facilitation Systems in their Districts
- Any person who is not able to file the Udyam Registration for any reason, may approach any of the above Single Window Systems for Udyam Registration purposes with his Aadhaar enrolment identity slip or copy of Aadhaar enrolment request or bank photo pass book or voter identity card or passport or driving license and the Single Window Systems will facilitate in getting an Aadhaar number and thereafter in the process of Udyam Registration
- In case of any discrepancy or complaint, the General Manager of the DICs of the concerned District shall undertake an enquiry for verification of the details of Udyam Registration submitted by the enterprise and thereafter forward the matter with necessary remarks to the Director or Commissioner or Industry Secretary concerned of the State Government who after issuing a notice to the enterprise and after giving an opportunity to present its case and based on the findings, may amend the details or recommend to the Ministry of Micro, Small or Medium Enterprises, Government of India, for cancellation of the Udyam Registration Certificate